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A diverse group of people are pictured at varying levels of underwater in this illustration about student debt. Michelle Kondrich for Vox

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There are no easy answers on canceling student debt

From mental health to home-buying, there are myriad ways education loans can affect lives. That’s why it’s so difficult to find a one-size-fits-all solution, economists say. 

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Emily Stewart covers business and economics for Vox and writes the newsletter The Big Squeeze, examining the ways ordinary people are being squeezed under capitalism. Before joining Vox, she worked for TheStreet.

Alexandria McCurtis, a truck driver in Detroit, would really like to fix the roof of her Detroit home. Standing between her and the $30,000 it would take: her student debt. Lifting that burden would make a meaningful difference in her life.

For Robert Kelly of Seattle, forgiveness of his student debts would mean a release from guilt that he worries affects his wife, Natalie. The suicidal thoughts he’s had over it have slowed since their son was born several years ago.

For Michelle (a pseudonym), being released from student debt would have meant not having to turn to sex work to pay for school, and for loans during and after college. She lost her virginity to a 63-year-old when she was 19.

Millions of people could tell stories like these: Nearly 45 million Americans now owe a total of $1.7 trillion in federal and private student loans, for educations finished and unfinished. The scale of the problem, and its effect on lives, has made student debt forgiveness a much more salient conversation in mainstream politics. But as the argument for cancellation has been fleshed out, so has an argument against it — that both economically and as a way of truly addressing equity, wiping clean the debt for borrowers on a broad scale may not be the way to go.

Nevertheless, hopes have been building that the federal government might intervene. President Joe Biden has said that he supports forgiving $10,000 of student loan debt through legislative action, but many Democrats are calling on the president to cancel far more — as much as $50,000 in federal student debt per individual — while some progressives are seeking to erase all of it.

“We know that people with student debt are less likely to own a house, they’re less likely to start a business, they’re delaying normal financial life cycles than previous generations past,” including starting families and saving for retirement, said Laura Beamer, lead researcher on higher education finance at the Jain Family Institute. “We also know that people 50 and above are the fastest-growth student debt loan accruing debt group, because they’re taking loans out for their kids or their grandkids.”

But stories like McCurtis’s and Michelle’s demonstrate the myriad ways student debt can affect the course of people’s lives. They also explain why it’s hard to suss out the broader economic implications of debt and the best solution.

“We tend to treat it as this kind of homogenous thing, that all student debt is the same,” said Steven Deller, an economist who studies community and small regional economies at the University of Wisconsin Madison. “There is a huge difference between someone who assumes a lot of debt and gets an MBA from Harvard or a medical degree from Columbia University, and ... a first-generation student who’s coming from a poor family background and goes into debt and doesn’t complete their degree.”

It’s become the expectation for many people that they will carry student debt with them throughout their adult lives. Unless they somehow miraculously come into a cash windfall — and there’s no surprise inheritance waiting in the wings — borrowers like the Kellys see their debt situation as hopeless. A future without it would make a marked difference.

“It would be a transformation, a reimagining of adult life for people who have higher education,” says Fenaba Addo, an associate professor of public policy at the University of North Carolina Chapel Hill who studies debt and wealth inequality.

But the broader debate — what loan forgiveness would mean for the economy and for society — is much thornier than it seems. It is true that it’s better to be a college graduate without debt than to be a college graduate with it, and that taking on student debt but not getting a degree can be disastrous. It is also true that people with higher levels of education tend to earn substantially more during their lifetimes than those without it, meaning there’s a payoff for that debt they took on.

Another layer to the debate: En masse, student debt forgiveness has never happened before, and there’s no widespread consensus about debt’s effect on the economy, or what getting rid of it would accomplish beyond individual relief. And the conversation isn’t taking place in a vacuum — the country is emerging from its second recession in a little over a decade, and teasing out exactly what is attributable to student debt compared with other forces in the economy isn’t the easiest task.

“It just gets really messy, where it’s a live political debate, and it’s one where we haven’t really done a major policy intervention,” said Claudia Sahm, an economist who has worked at the Federal Reserve and the Council of Economic Advisers. “How are we going to know what a student loan forgiveness program would do when we have never done this?”

The conversation around debt isn’t just an economic one. It’s also one that involves equity, race, and morality. The story young people in America are told is that a higher education is the ticket to prosperity and social mobility, that the debt is worth it. Those who go to college are making a choice, but it’s a choice they’re often urged to pursue whatever the cost — and the cost of college has risen steadily.

So even if student debt forgiveness isn’t a magic solution to all the economy’s woes, it’s still worth taking seriously.

“When those people say, ‘Well, people made a choice,’ 30 years ago, that choice was different than what it is now; 40 years ago, that choice was different than it is now,” said So’Phelia Morrow, a graduate student at the University of Michigan who has researched the health effects of student debt and is dealing with debt of her own. “This is a racial issue, this is a gender issue, this is a class issue.”

There are both economic and moral cases to be made for and against student debt forgiveness, and there are competing versions of what forgiveness would accomplish and at what amounts. None are as clear-cut as anyone would like.

“At the end of the day, it boils down to which metric are you looking at and what do you think is the counterfactual: What would happen for these borrowers if it hadn’t been for student debt?” said Dubravka Ritter, an adviser and research fellow at the Consumer Finance Institute at the Federal Reserve Bank of Philadelphia, who has studied student debt extensively. Depending on what metrics you use, she said, forgiveness can look both progressive and regressive.

The argument for student debt forgiveness goes something like this: Forgiving some or all student debt would unleash debtors from a major financial burden, and the money that’s freed up would serve as a meaningful boost to the overall economy and relieve a generation that’s been scarred by multiple recessions. Forgiveness addresses equity, too: Black borrowers face a much heavier student burden than white students. They borrow more, and they have a harder time paying it back. And yet, systemic racism makes it so Black students have to both get an education and take out formidable loans to do it; the labor market is tilted against them at any education level, and they lack intergenerational wealth.

According to data from the Federal Reserve, 55 percent of people under 30 who went to college took on some debt to finance their educations, and 17 percent of those with student debt were behind on payments in 2019. First-generation college students, especially those under 40, are likelier to be behind on loans than those whose parents went to college, as are Black and Hispanic students compared with white students. According to research from the Jain Family Institute, nearly 6 in 10 student borrowers between ages 18 and 35 owe more than the original loans they took out, due to interest payments. In majority-Black communities, that jumps to three out of four.

The race gap in student debt has gotten worse over time: From 2000 to 2018, the median student debt for white borrowers went from $12,000 to $23,000; for Black borrowers, it went from $7,000 to $30,000. One study found that 20 years after starting college, the median Black borrower still owes 95 percent of their debt, while white borrowers have paid off 94 percent of it. Up and down the socioeconomic ladder, Black borrowers are in a worse situation than whites. And in the face of labor market discrimination and centuries of structural racism, the debt trap is particularly acute.

“If you know you’re going to be discriminated against, you may decide to pursue a résumé-building strategy to shield you against some of the labor market discrimination,” Darrick Hamilton, founding director of the New School’s Institute on Race and Political Economy, told me in an interview last year. “Not only do we encourage them to take on this debt, but they get a lower return than white people.”

If Black students have to go into more debt to try to advance, advocates said, it’s hard to turn around and say, “Well, that’s on you.”

Those most burdened by student debt are often those who didn’t graduate, who are saddled with college-level debt without the college-degree premium on their incomes.

“Some of the kind of more striking numbers are smaller debt amounts,” said Paul Goldsmith-Pinkham, an associate professor of finance at Yale. “They have $5,000 to $10,000 in debt that they’re not paying, which, if it’s at a 10 percent interest rate and you’re not paying it, it can become very prohibitive very quickly.”

McCurtis, a 33-year-old mother of two, doesn’t quite find herself in that category, but she’s not far from it. She owes about $25,000 in student loans, most of it federal, from a pointless medical assisting degree (she incurred thousands of dollars in debt only to discover the job paid $10 or $11 an hour) and unfinished nursing school. She’s now a truck driver for FedEx. Her husband has about $15,000 in debt from a massage therapy certificate he also doesn’t use. “We got these decent-paying jobs after we accrued this huge student loan debt for something we’re not even using,” she says. “We probably won’t finish paying it until we’re close to retirement with the way the interest rates are.”

She feels fortunate to have inherited a house from her grandfather, but the way her student debt weighs on her credit — it “rides it to death,” she says — means a loan to fix up the house or get a new car is hard to come by and expensive. Without student debt, McCurtis says, “I could probably get the assistance I need for repairs without that high interest rate, and it would be a weight off my shoulders.”

There is some evidence of what the weight off student debtors’ shoulders might look like. A recent National Bureau of Economic Research paper looked at what happened to a group of borrowers who had their debt canceled because of a lawsuit. They found that those borrowers reduced their overall indebtedness and were able to pay off other debts, such as credit cards. They were also more mobile — they moved states and had a higher probability of changing jobs, which for some, translated to higher incomes. “We actually find that these individuals tend to lower their total liabilities over time by repaying, for instance, credit card debt, so their overall financial health improves,” Marco di Maggio, an associate professor of business administration at Harvard Business School, told me in an interview last year.

His research, which dealt with borrowers who were in default and weren’t making payments, found that debt relief resulted in a multiplier of about one, meaning that every $1 of debt forgiveness generates about $1 elsewhere. He estimates the impact of debt forgiveness could be greater for those who are actually making payments, but his research doesn’t capture that.

But other estimates put the potential multiplier effect of student loan forgiveness much lower.

“It’s hard to make sweeping generalizations about the populations who hold debt,” Addo said, explaining part of the conundrum. “You can’t paint this with a wide brush and say this is what’s going to happen, and only one type of policy is going to solve everyone’s issues.”

For many people, the moral imperative for canceling student debt is obvious, but a solid contingent of economists are not sold on the idea of blanket loan forgiveness.

While many advocates would argue in favor of full student debt forgiveness, or for forgiving something like $50,000 per person, even a relatively small amount would affect a lot of people — canceling $10,000 of federal student loan debt would completely lift the debt burden for about one-third of borrowers. There could be other ways to try to target it, perhaps by income, but then what would be the cutoff? Policymakers would be wading into muddy waters in trying to decide who deserves debt relief and who doesn’t.

“We don’t have a firm definition of what need is and who we’re really trying to get to a better place, and if we don’t have a definition of what we’re trying to accomplish, the arguments about how much will cycle endlessly,” Sahm said. “Part of the mess and the contentiousness of the student loan debate boils down to — and is at least not helped by — the different goals, the different versions of success.”

The argument against broad-based loan forgiveness: While it is true that student debt is a burden for many people, it doesn’t mean much for the larger economy. People who graduated from college, even with debt, tend to be better off than people who did not, and the people with the highest debt burdens are often the people who can afford them.

Forgiving all student debt could be quite regressive, because higher-income people would reap the most benefits. Households with graduate degrees, which 14 percent of adults over 25 have, owe more than half of all education debt, and the just 3 percent of adults with professional and doctorate degrees — doctors, lawyers, MBAs — have 20 percent of the debt. Some make the case that forgiving lower amounts of debt, if it’s going to happen, or otherwise targeting forgiveness, would better help the most burdened borrowers and be less expensive.

“Would it have some stimulating effect? Yes, in theory. In practice, it’s just very, very poorly designed stimulus,” said Beth Akers, an economist at the conservative-leaning American Enterprise Institute. She later added, “A huge part of the story of inequality in America has nothing to do with student loans.”

When it comes to the broader economy, too, many economists believe the stimulus effect would be quite small. An estimate from Goldman Sachs economists in December 2020 found that forgiving $10,000 in student debt would add 43 cents to the economy for each $1 over a 10-year period, and forgiving $50,000 would have a bigger boost to GDP, but there’d be a smaller bang for the buck.

Student debt forgiveness of $10,000, $50,000, or even the whole amount doesn’t put that money into people’s bank accounts. For those making payments, it would free up that money to direct elsewhere. But for those not making payments, some economists aren’t sure it would make a difference. “If you forgive that debt, they don’t have any more money in their pocket,” said Adam Looney, executive director of the Marriner S. Eccles Institute at the University of Utah and a nonresident fellow at the Brookings Institution.

Plus, if debt cancellation doesn’t cover someone’s full student debt, many will still be stuck making payments, says Mark Kantrowitz, a student loan expert and author of How to Appeal for More College Financial Aid. “Loan forgiveness doesn’t really manifest itself in terms of immediate payment relief if it doesn’t forgive your entire debt.”

It’s hard to know that for sure. For example, some research after the Great Recession found that principal reduction on mortgages didn’t really make a difference for people in terms of defaults or their spending, while reductions in payments did have a significant impact. But other research, looking at credit card borrowers in distress, found that overall debt relief mattered more than restructuring interest payments. “One takeaway in this space is that the kind of debt might matter a lot,” Goldsmith-Pinkham said.

Just because something doesn’t have a big economic effect, however, doesn’t mean it’s not the right thing to do. And debt can still be a heavy mental and emotional burden.

The economy is much more than topline GDP numbers, and people’s livelihoods more than their bank accounts. There are many people whose student loan debt is so insurmountable that they’re just never going to be able to pay it off, which means that the government isn’t getting that money back, anyway.

“I think there is a psychological element to this that is clearly salient. You talk to people who are burdened by these debts, and they just feel hopeless,” Looney said. “There’s an oppression there.”

The equity argument returns here. “The higher the student debt forgiveness amount is, the more equitable it’s going to be for marginalized communities and low-income communities,” Beamer said. “Because Black and Latino students borrow more than their white peers, that’s why a higher amount of debt forgiveness is helpful.”

Talking about student loan debt is challenging in part because there isn’t a single way to frame it: You can compare college graduates with debt and graduates without debt, or graduates and non-graduates, and tell different stories.

Take, for example, homebuying. If you are comparing two people in the former scenario — both with identical degrees, one with debt, one without — then, yes, debt will delay some life decisions, including buying a home. According to one estimate from economists at the Federal Reserve, every $1,000 in student debt delays homeownership by about two and a half months, but the effect starts to wear off as people get into their 30s.

But if you are looking at someone who borrowed so they could go to school and the alternative is no degree and no related income boost, the scenario shifts. One recent National Bureau of Economic Research paper found no negative effects on homeownership. “Would they be a homeowner at all if not for taking on student debt to attend a college or university?” said Ritter, of the Consumer Finance Institute. “That’s missing from a lot of studies.”

This is part of why the issue becomes so heated, politically. Why should a degree cause a diminishing return on life based on whether someone had to finance it through debt? At the same time, for people who didn’t go to college, for whatever reason, student debt forgiveness for others can feel unfair. American society is one of rolling advantages and disadvantages.

Natalie and Robert Kelly, the couple living in Seattle, feel both the freedom of a debt-free education and the weight of debt strongly. She graduated from the University of Pennsylvania with no debt; he graduated as valedictorian from the now-defunct ITT, a predatory for-profit institution, didn’t finish his degree at a subsequent institution, and now owes double the original loans he took out.

“We have to plan all of our finances around it. His credit is really atrocious, so we’ve had to use my income and my credit for anything that we need to do,” Natalie Kelly said. She’s a union organizer, he’s a bus driver, and they both make about $60,000 a year. Were it not for the growing debt, their lives would be decidedly different. “We should be the social mobility story, but we’re not, because this debt is such a huge, crushing weight.”

Robert has struggled with depression over his debt and has worried that it might be passed on to his family. “Before I had my son, I definitely had suicidal thoughts,” he said. “When I found out that my debt is on me because I’m the only one that signed on anything, so my debt would basically disappear with me, I started to feel a little better.”

His son is only 7 now, but Robert still thinks about how he’ll talk to him about college when the time comes, “Is sending him to school the best idea if he didn’t get what my wife got?” he wonders.

The focus on student debt’s effect on the young and middle-class can mask other, subtler ways it shows up in the economy.

It can be a drain on rural America and hinder local communities. Student loan borrowers from rural areas are likelier to move to urban areas where there are higher-paying jobs that are likelier to help them pay back their debt. Those who stay in rural areas struggle with the debt more.

“They are facing two choices: One is, ‘Do I go to an urban area where the cost of living is higher but I have a higher-paying job?’ or, ‘Do I go to a smaller community or third-tier area where the cost of living is lower but the pay is lower?’” Deller, from the University of Wisconsin, said. “It also has a dampening effect on starting a new business. Perhaps not as much as you would think, but if you have a large student debt obligation, you’re less likely to be able to finance those kinds of things. It kind of creates a bottleneck in the economy.”

Student debt can weigh down farmers as well, said Vanessa Garcia Polanco, a federal policy associate at the National Young Farmers Coalition. “A lot of people enter agriculture with student debt, and then two or three years later, they have to stop because they can’t manage all the financial risks that come with starting a farm business and also student loans,” she said. “It’s a double burden: Farming is capital intensive, really risky, and then you also have debt. We say farming is like betting, but when you have student debt, it’s like double betting.”

One survey from the Young Farmers Coalition found that over half of young farmers are having a hard time making payments on their student loans.

Among older Americans, student debt is also becoming a problem that forgiveness could help address. Some older people are dealing with loans for their own education, and others are helping their children or grandchildren pay off their loans, or have taken out loans on their behalf. People who can’t pay back those loans — Parent PLUS loans — can have their Social Security garnished. Older people with student loan debt report skipping medications and visits to the doctor at higher rates, and they have less savings for retirement.

“The social safety net that we think everyone needs to have access to when they’re older to be able to survive, if you have student debt, you don’t have the rights to full access,” said Dominique Baker, an assistant professor of education policy at Southern Methodist University.

America’s student debt problem is, at its core, perhaps a moral dilemma. If $1 trillion in student loan forgiveness comes at the expense of other government priorities — say, infrastructure — reasonable minds can disagree on the right path, or wonder whether the idea of scarcity in government spending is even real.

We have created a society where we say that if you want prosperity and you want a secure life, you need to get a college degree. Education is framed as the golden ticket to a successful future, and people sign away their lives to get it. Now, many are trapped.

“When you see smart people making the same mistake over and over again, it’s hard to blame the individual,” said Akers, the American Enterprise Institute economist. “Something about our system is causing smart people over and over again to get themselves into positions that I think they regret.”

That’s the case for Michelle, the daughter of an immigrant single mother, who struggled during and after her undergraduate degree to pay for school. She tried to donate her eggs during college, but when that didn’t work, she turned to sex work to cover the gaps in tuition, and later to help pay back loans. In fact, she used her student debt to try to appeal to potential clients. “I always knew that I wasn’t a bombshell, I knew that I could do ‘the cute girl next door,’ and I look very young, so part of that was ‘struggling student,’” said Michelle, who requested that her real name not be used because of the stigma around sex work.

Few people in Michelle’s life know about the sex work — in her college days, she was less careful about who she told and lost relationships because of it. And she has since stopped. Now she’s a PhD student on scholarship at one of her “dream schools,” with about $15,000 left in student debt.

“There are moments even now … feeling way more professional security and like I have a brighter future than I would ever have imagined, I still find myself regretting having gone to college at all. And the money issues and everything else that that snowballed into is definitely a big part of that,” she said.

It’s “kind of impossible” for her to think of what life would be like without the debt. That’s the case for millions of people across the country, too.

Emily Stewart covers business, politics, and the economy for Vox.


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